How Does a Balance Transfer Affect Your Credit Score?

How Does a Balance Transfer Affect Your Credit Score?

A credit card balance transfer can be a beautiful thing. By transferring existing high-interest debt to a credit card with no or low interest, you can save money and make it easier to pay off your debt. It can also have an impact on your credit score.

How, exactly, does balance transfer affect your credit score? A balance transfer can affect your credit score either positively or negatively — though the upsides are likely to outweigh any adverse effects in the long-term if you manage the balance transfer responsibly.

Recommended: How to Avoid Interest On a Credit Card

How Does a Balance Transfer Work?

A balance transfer is the process of consolidating existing high-interest debt to a different credit card. In other words, you’re effectively paying a credit card with another. Usually, you transfer the balance to a new credit card, but some cards allow you to do a balance transfer to an existing card.

Balance transfer credit cards often offer a low, or even 0%, annual percentage rate (APR) for a promotional period. This temporarily lowers the credit card interest rate, potentially allowing you to save on interest and more quickly pay off your debt. The length of the introductory APR offer varies by card, usually lasting anywhere from six to 21 months, after which the standard purchase APR will apply.

There is usually a fee required to make a balance transfer. This fee is either a flat rate or a percentage of the balance you’re transferring, such as 3% to 5% of your balance.

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When to Transfer the Balance on Your Credit Card

There are two key things to look for in order to identify an opportune time for a balance transfer. First, you’re approved for a balance transfer card that offers a 0% APR introductory period. Second, you’re in a place where you can focus on paying off the balance you transfer to your new card before the promotional period ends.

It’s important to work aggressively on eliminating your balance during this period. Otherwise, once the promotional APR kicks over to the usual APR, the interest rate could potentially be as high — if not higher — than the APR of your old card.

How a Balance Transfer May Hurt Your Credit Score

If you’re contemplating a balance transfer, you might be wondering: Does a balance transfer affect my credit score? While a balance transfer itself won’t directly impact your credit score, opening a new balance transfer card could have a ripple effect on your credit. A balance transfer to an existing credit card may not affect your credit score as much as opening a new account.

Let’s take a look at a couple of the ways a balance transfer could cause your credit score to drop:

•   Applying for new credit results in a hard inquiry. Whenever you apply for a credit card, the credit card issuer will do a hard pull of your credit, which usually lowers your score by a few points. Hard inquiries stay on your credit report for two years. That being said, when compared to what affects your credit score on the whole, hard inquiries don’t impact your credit as much as, say, your payment history or credit utilization.

•   Getting a new card will lower the average age of your credit. Another way that opening a new balance transfer credit could hurt your credit score is by lowering the average age of your credit. The length of your credit history makes up 15% of your score. A longer credit history is an indicator that you’ve taken steps toward establishing credit.

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How a Balance Transfer May Impact Your Credit Score

Now, let’s take a look at how a balance transfer can impact your credit score:

•   It can lower your credit utilization rate. As credit usage makes up a significant chunk of your credit score — 30%, to be exact — a balance transfer could give your credit score a lift. When you open a new credit card account, it will add to your total credit limit, which, in turn, can lower your credit utilization. As a credit card rule, the lower your credit utilization, the better it is for your credit score.

   Here’s an example: Say you have two credit cards, and they each have a $10,000 credit limit, for a total credit limit of $20,000. You’re carrying a $10,000 balance. In turn, your credit usage is 50%.

   Now, let’s say you open a new balance transfer credit card that has a credit limit of $10,000. Combined with your other two cards, you’ll now have a total credit limit of $30,000. With a $10,000 balance, your total credit usage is lowered to about 33%.

•   You may be able to pay down debt faster. As you’re paying less interest — or perhaps no interest at all — during your card’s promotional period, you can more easily whittle away at your outstanding debt quicker. That’s because more of your payments will go toward paying down your principal. Plus, lowering that outstanding balance also feeds into lowering your credit utilization ratio — another positive when it comes to building credit.

•   A balance transfer can make it easier to stay on top of payments. A balance transfer allows you to consolidate multiple balances into one monthly payment. This can make it easier to stay on top of making on-time payments, as you won’t have numerous due dates to juggle. In turn, this can have a positive impact on your payment history, which makes up 35% of your credit score.

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Steps to Take After a Balance Transfer

So you’ve decided to do a balance transfer. Congrats! Now, here are the steps to take to make the most of it.

Stop Using Your Other Credit Cards

If possible, put a halt on spending with your other credit cards. That way, you can focus solely on paying off the outstanding balance you’ve transferred.

Still, you’ll want to keep your other cards open. You might consider using a credit card to make a small purchase every so often to keep those accounts active.

Know When the Introductory Period Ends

Make sure you’re aware of when the introductory APR for your balance transfer card ends. Also take time to note what the balance transfer card’s standard APR is. When the promotional APR ends, that rate is what your new APR will be.

Devise a Payoff Plan

A balance transfer is really only worthwhile if you aim to pay off your outstanding debt — or as much of it as possible — during the promotional APR period.

Let’s say you have $6,000 in debt, and you’ve secured a 0% APR that will last for 12 months. Aim to pay off $500 every month, or $250 twice a month. That way, you’ll have your debt paid off before the higher APR kicks in.

Make Shifts in your Spending

To ensure that you’re paying off the outstanding amount on your balance transfer card at a steady clip, look at ways you can scale back on your spending. Doing so will free up money that you could throw at your debt payoff efforts instead.

Along the same lines, see if you can increase your cash flow. Perhaps you can take on more hours at work or get a side hustle.

Is a Balance Transfer a Good Idea?

A balance transfer can be a solid move to make if you’re prepared to knock off the debt before the introductory APR period ends. Otherwise, you’re left with a mountain of debt — potentially with a higher interest rate than you currently have.

When deciding whether a balance transfer is right for you, you’ll also want to take into account any balance transfer fees you’ll pay. Do the math to ensure the amount you’ll save on interest will more than offset the cost of these fees.

Also note that, before you worry about balance transfer effects on your credit score, you’ll need to consider whether your credit is even strong enough for you to qualify. The most competitive balance transfer offers generally require at least good credit (meaning a FICO score of 670 or above), further underscoring the importance of good credit.

If you’re not sure of where you stand credit-wise, don’t worry about taking a peek: here’s how checking your credit score affects your rating (spoiler: it doesn’t).

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Balance Transfers and Credit Scores: The Takeaway

A balance transfer can both hurt and help your credit score. Your credit score could temporarily suffer after applying for a new balance transfer card. However, a balance transfer has the potential to help your credit score, as it can lower your credit utilization rate and make it easier for you to stay on top of your payments.

Find out if you qualify for a SoFi Credit Card today!

FAQ

Do balance transfers hurt your credit score?

Balance transfers can either hurt or help your credit score. Making a balance transfer can hurt your credit score if you apply for a new card to do so, which requires a hard pull of your credit. It can also ding your score because it may lower the average age of your credit lines.

Will I need a credit credit score for a balance transfer?

To qualify for a balance transfer card with a zero or low interest rate, you’ll need a strong credit score. A good credit score is generally considered in the range of 670+.

Will I lose points with a balance transfer?

You will not lose rewards points with a balance transfer. That’s because your old creditor will generally consider the balance transfer as payment.

What are the negatives of a balance transfer?

Getting a balance transfer credit card can bring down your credit score if it requires a hard inquiry on your credit report. Plus, it can lower your average credit age. Another downside of a balance transfer is that you’ll need to pay a balance transfer fee, which is either a flat rate or a percentage of the outstanding amount.


Photo credit: iStock/Roman Novitskii

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

The SoFi Credit Card is issued by SoFi Bank, N.A. pursuant to license by Mastercard® International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

1See Rewards Details at SoFi.com/card/rewards.

SoFi cardholders earn 2% unlimited cash back rewards when redeemed to save, invest, a statement credit, or pay down eligible SoFi debt.

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How Many Lines of Credit Should I Have?

How Many Lines of Credit Should I Have?

There’s no one answer that fits all situations. The average American has 4 credit cards. But how many lines of credit you should have depends upon your needs, your skill at managing your finances, and your ability to make payments on time.

We’ll explore two types of credit lines, provide definitions of basic credit terms, and offer some broader context so that you can make the choice that’s best for you.

Line of Credit Definition

First, what is a line of credit? A personal line of credit (sometimes called a PLOC) allows consumers to borrow money as they need it, up to a set limit, and pay it off over time. A line of credit can be used to pay bills or make purchases directly or to withdraw cash with no cash-advance fee. As long as borrowers keep paying down the balance, they can keep borrowing. In other words, this is a type of revolving credit.

Lines of credit are usually granted only to people with good credit. Because they’re less risky for the lender, the interest rate can be lower than for credit cards.

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How Does a Line of Credit Work?

Many banks, credit unions, and online financial institutions offer lines of credit. A distinguishing feature is the “draw period.” During that time — typically seven to 15 years — funds can be borrowed and repaid in a revolving way. When the draw period ends, users can no longer make purchases or withdrawals, though they can reapply to keep the line open. The repayment period can continue for additional five to 13 years.

To utilize a line of credit, consumers may receive checks, a card, or a direct deposit into their bank account. Funds can be used however they like, but generally go toward large purchases. Personal lines of credit often have a variable interest rate, with interest-only payments during the draw period.

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Is It Possible To Have Too Many Lines of Credit?

In this case, a “line of credit” refers to both PLOCs and credit cards. All credit cards are a form of credit line, but not all lines of credit are associated with a credit card.

If a consumer has many credit lines, lenders may see them as high-risk — even if their balances are all zero. As noted above, the average American has four credit cards. New Jersey residents have the most credit cards in the country, with 4.5 on average. Older generations tend to carry more cards than Millennials and Gen Z. So while four lines of credit may be considered normal, it can be “too many” if a consumer has trouble juggling their bills and making payments on time.

Is It Possible To Have Too Few Lines of Credit?

To build a strong credit score, it helps to have a variety of credit types. Credit mix accounts for 10% of a FICO® Score, and the ideal mix includes both revolving credit and installment loans like personal loans, car loans, and so forth. Although each person’s situation is unique, just having credit accounts and managing them well is what builds a good credit score. Having one or two cards can be enough.

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Credit Card Definition

You may be wondering, if a line of credit can come with a card, then what is a credit card? Both credit cards and lines of credit are forms of revolving credit offered by many financial institutions. A credit card holder can also make purchases up to the credit card spending limit. However, credit card users can avoid interest charges by paying off the balance in full each month. Essentially, credit cards provide consumers with unlimited short-term loans for free (assuming there’s no annual fee).

Credit cards don’t have a draw period — they remain open as long as the account is in good standing. The average credit card limit, according to the latest report from credit bureau Experian, is $30,365.

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Line of Credit vs Credit Card

A credit card — as the name implies — has a card connected to it, which allows the borrower to access funds. A line of credit doesn’t necessarily have a card connected to the account. Lines of credit tend to have lower interest rates and annual percentage rates (APRs) than credit cards and may have higher limits. So they may be better suited to large purchases, as noted above, that can be paid for over time.

Credit cards are easy to use for everyday purchases and often come with an interest-free grace period (from the purchase date until the payment date). Credit cards may provide rewards and perks that personal lines of credit do not. And applying for a credit card is usually a simpler process than the line of credit process.

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Credit Score Risk Factors to Consider

How someone manages personal lines of credit and credit cards will have an affect on their credit score and, therefore, their ability to borrow at advantageous rates. Here are some ways your line of credit may negatively influence your credit score:

•   Credit utilization. After a large purchase, your credit utilization percentage will rise. Credit utilization accounts for 30% of your credit score.

•   Payment history. Late or missed payments can negatively impact your history. Payment history accounts for 35% of your FICO score.

•   Credit history length. A new line of credit will lower the average age of your credit history. Length of credit history accounts for 15% of your score.

Consumers who are concerned about their credit score may want to take advantage of a free credit monitoring service to see how their day to day actions impact their score.

Using Multiple Credit Cards

How many credit cards should you have? As long as you can responsibly manage your credit cards and haven’t applied for too many new ones in a short timeframe, then the number isn’t likely to have a negative impact on your credit.

However, the more cards you have, the more payments and due dates you’ll have to juggle. Ask yourself whether any of these issues apply to you:

•   Multiple annual fees are taking a bite out of your budget.

•   Monitoring your cards for fraudulent activity has become challenging.

•   Knowing you have cards with low or no balances makes it easier to overspend.

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The Takeaway

The right number of credit lines varies by personal need and financial circumstances. Lines of credit include but aren’t limited to credit cards. What’s most important is to use them wisely to protect your credit score, avoid unnecessary debt, and manage your finances responsibly. It may help to know that the average American has about 4 lines of credit.

The SoFi money tracker app can help you seamlessly manage your money. Connect all of your accounts on one convenient mobile dashboard to easily see the big picture. SoFi allows you to set multiple financial goals, track your spending, monitor your credit score, and more.

Get a bird’s-eye view of your finances and track your money like a champ.

FAQ

How many lines of credit is good for your credit rating?

Specifics will depend upon your financial situation. Elements that go into credit score calculations typically include the borrower’s payment history (making payments on time is the biggest factor), outstanding balance amounts in comparison to limits, credit history length, having a good credit mix, and strategically applying (or not applying) for new credit accounts.

How many lines of credit is too much?

What’s most important is to have the right number for your financial needs and overall situation. Being able to responsibly manage the number of accounts you have is important since making payments on time is the biggest factor in your credit scores. While most Americans have about four lines of credit, that may be “too much” for some consumers.

What are some consequences of having multiple lines of credit?

It can be more challenging to keep track of payment dates and amounts, which may make it easier to make a payment late or miss it entirely. This can have a negative impact on your credit score. Plus, if accounts have annual fees, then having several of them can add up. Multiple lines of credit may also make it more difficult to spot fraud. That said, if someone can responsibly manage multiple lines of credit, then that may be the right number of accounts for them.


Photo credit: iStock/demaerre

SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

*Terms and conditions apply. This offer is only available to new SoFi users without existing SoFi accounts. It is non-transferable. One offer per person. To receive the rewards points offer, you must successfully complete setting up Credit Score Monitoring. Rewards points may only be redeemed towards active SoFi accounts, such as your SoFi Checking or Savings account, subject to program terms that may be found here: SoFi Member Rewards Terms and Conditions. SoFi reserves the right to modify or discontinue this offer at any time without notice.

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Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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Guide to Credit Card Food Delivery and Ride Sharing Discounts

Guide to Credit Card Food Delivery and Ride Sharing Discounts

The best credit cards for food delivery and ride sharing offer a host of benefits, including generous cash-back rewards, free annual memberships, and annual credits on these services. While food delivery and ride sharing credit cards can have some downsides — like high annual fees, in some cases — the positives might outweigh the negatives for those that often order delivery or use ridesharing.

Depending on which type of service you use, the process of claiming your earned rewards can be quick and easy. Often, it’s as simple as linking the eligible credit card to your account.

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What Are Rewards Credit Cards?

Rewards credit cards offer benefits in exchange for every dollar you spend on the card, typically as cash back, points, or airline miles. You can then redeem the credit card rewards you’ve earned in a variety of ways, such as in the form of a check, a statement credit, travel perks, or gift cards.

While not all rewards credit cards have annual fees, those with higher annual fees tend to offer more generous benefits. Further, rewards credit cards generally have higher annual percentage rates (APR) than more basic credit cards. This makes it all the more important to adhere to the credit card rule of avoiding carrying a balance when possible.

In general, you’ll need a good or excellent credit score (meaning 670+) to qualify for the top rewards credit cards.

Recommended: How to Avoid Interest On a Credit Card

How Do Food Delivery Benefits Work?

The way food delivery benefits typically work is that a credit card provider partners with a popular food delivery service. Then, cardholders receive certain credit card benefits, such as free memberships, higher points accrual when using the service, or statement credits on food deliveries.

Which services are paired with your card and the benefits you receive will depend on the credit card provider. In some cases, rewards include a higher rate of cash-back rewards in more general categories, such as takeout or dining. Check your credit card’s website to see what — if any — food delivery benefits are available to you.

Recommended: Does Applying For a Credit Card Hurt Your Credit Score

How Do Ride Sharing Benefits Work?

Ride sharing benefits are fairly similar to food delivery benefits. Credit card providers partner with ride sharing services to provide benefits for certain credit cards they offer. For instance, there are Lyft credit cards and Uber credit cards that offer perks with those ride sharing services.

Those benefits may come in the form of higher point accruals, statement credits, and free subscriptions. Some cards also offer these benefits in the form of more generic travel credits or cash-back rewards, which may apply to ride sharing services.

Pros and Cons of Using Credit Cards for Food Delivery

Using a credit card for food delivery can have its pros and cons, depending on the credit card you’re using and your own spending habits. Here are some of the advantages and drawbacks of food delivery credit cards to consider:

Pros

Cons

Higher rewards rates for food-related spending Could carry high annual fees, which might not be worthwhile for occasional users
Can cover membership fees for a period of time May have a higher purchase APR
May offer general dining credits Can tempt cardholders to spend more on takeout due to card’s benefits

Pros and Cons of Using Credit Cards for Rideshare Expenses

Are you thinking about a ride sharing credit card? Here are some pros and cons to consider for these cards:

Pros

Cons

Higher rewards rates on rideshare spending Can place limits or deadlines on offers or rewards redemptions
May offer travel credits that can apply to rideshare costs May have high annual fees
Often provide nice benefits across-the-board, such as travel insurance Could be limited to earning rewards or credits with a particular service

Activating Your Credit Card Offers

Each credit card is different, but activating your offers shouldn’t be too difficult. In some cases, it’s as simple as signing up for the relevant service and linking your credit card to it.

In other cases, you might have to manually activate offers on the service’s app or website. Usually, if your card includes a free membership, it must be manually activated.

Keep in mind that food delivery and ride sharing credit cards often run promotions, and these do expire. For example, the Chase Sapphire Reserve previously included a Lyft Pink membership, but that offer expired in early 2022. However, this card also includes one free year of DoorDash’s DashPass, which is good until the end of 2024.

Using a Credit Card for Food Delivery

Using a credit card for food delivery is a simple process. The first thing you’ll want to do is to create an account on the app, which should only take a couple of minutes. Likewise, add your credit card if you have not already done so.

If you already have an account, you may want to make your rewards credit card the default payment method to take advantage of discounts and rewards. Also make sure to activate any free memberships that might be available to you.

Then, you can search restaurants on the food delivery app, either using your address or your smartphone’s location. These apps often have food categories to make your search a little bit easier.

Once you find something that sounds good, you can add items to your cart and check out. Since you have already added your rewards credit card, use it as your payment method to take advantage of those rewards. And if you use your credit card frequently, it can help you earn your credit card welcome bonus.

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Using a Credit Card for Ride Sharing

Using a credit card for ride sharing will follow all of the same principles as using one for food delivery. Make sure you add your rewards credit card and activate your membership if one is available.

The biggest difference when using a credit card for ride sharing is the process of booking the ride itself. Generally, you book a ride by specifying the pick-up and drop-off locations; ride sharing apps can usually use your smartphone’s location as the pickup.

The app will then find a driver for you and give you the chance to select or change your payment method. If you have a rewards credit card, make sure it appears as the payment method. If it doesn’t, select it before confirming your ride. Once you do that, you’re all set.

The Takeaway

Food delivery credit cards and ride sharing credit cards can offer a slew of perks, including cash-back rewards, statement credits, and free memberships for a few months or even a year. Credit card owners can take advantage of these rewards when hailing a ride or ordering food through a delivery app.

If you want these perks and more, the cash-back rewards credit card from SoFi is a strong contender. It offers perks for both ride sharing and food delivery through World Elite Mastercard® Benefits. This includes Lyft $5 monthly credits and a three-month free trial of DashPass.

Learn more and apply today for a credit card with SoFi!

FAQ

What is credit card dining?

Credit cards can offer a variety of perks when you spend on dining. That could include high cash-back rates when eating at restaurants or ordering delivery. Other credit cards come with free memberships for delivery apps for a set time period or a statement credit for orders.

Are the best cards for rideshare expenses also the best cards for food delivery?

Some credit cards that are the best for rideshare can also be the best for food delivery. However, some credit cards work well for ridesharing because they are travel credit cards, and this may not carry over to food delivery.

Do rideshares count as travel for credit cards?

It depends on the credit card. Some credit cards consider rideshares as travel and will let you earn a higher cash-back rate when booking a ride, for example. However, you should check the details of your card to be sure, as each card is different.


Photo credit: iStock/RgStudio

1See Rewards Details at SoFi.com/card/rewards.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

The SoFi Credit Card is issued by SoFi Bank, N.A. pursuant to license by Mastercard® International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

SoFi cardholders earn 2% unlimited cash back rewards when redeemed to save, invest, a statement credit, or pay down eligible SoFi debt.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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Crypto Credit Card vs Crypto Debit Card Explained

Crypto Credit Card vs. Crypto Debit Card: Key Differences

Cryptocurrency — sometimes referred to as blockchain technology — is a hybrid between a currency and an investment. There are many different types of cryptocurrencies, with Bitcoin being the most well-known. As the popularity of cryptocurrency continues to increase, banks and other issuers are coming out with crypto credit cards and crypto debit cards.

While these two types of cards both allow cardholders to earn cryptocurrency, there are some key differences between a crypto credit card vs. crypto debit card. It’s important to understand how they differ so you can make the right choice for your financial situation.

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What Is a Crypto Credit Card?

The term crypto credit card usually refers to a type of credit card that allows cardholders to earn cryptocurrency as a reward. Cryptocurrencies are often more volatile than other types of rewards you can earn, so make sure you’re prepared for that level of volatility before signing up for a crypto credit card.

Just like with any other credit card, crypto credit cards draw from a line of credit. Cardholders must pay back their balance in full each month in order to avoid incurring interest charges. Purchases and payments on crypto credit cards are usually made with U.S. dollars, though some cards may allow cardholders to use cryptocurrency held in an associated account.

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How Crypto Credit Cards Work

Crypto credit cards earn rewards in a very similar way to most other rewards credit cards. With each purchase you make using the card, you’ll earn cryptocurrency.

As an example, say your crypto credit card earns 3% back at restaurants. If you make a $100 restaurant purchase, your crypto wallet will get credited with $3 of cryptocurrency.

Pros and Cons of Using a Crypto Credit Card

Especially given the volatility of cryptocurrency, there are a number of upsides and downsides to take into consideration before using a crypto credit card:

Pros of Using a Crypto Credit Card Cons of Using a Crypto Credit Card
Can earn cryptocurrency rather than other types of rewards Fewer crypto credit card options than other types of rewards credit cards
Easier way to start investing in cryptocurrency Cryptocurrencies can be volatile and/or lose value
Cryptocurrency may increase in value Can’t control the timing of your crypto investment

What Is a Crypto Debit Card?

A crypto debit card is a type of debit card that withdraws crypto directly from your wallet to make purchases. However, when you make a purchase, the merchant gets paid in fiat currency, which means a conversion must take place from your type of cryptocurrency into U.S. dollars.

Many crypto debit cards also allow you to access your cryptocurrency wallet at merchants or ATMs that don’t normally accept cryptocurrency. This can give you added flexibility and access to your cryptocurrency funds.

Additionally, some crypto debit cards also can earn cryptocurrency as rewards.

How Crypto Debit Cards Work

Like a regular debit card, most crypto debit cards operate on one of the major card networks (Visa, Mastercard, etc). This allows you to use your crypto debit card anywhere that these networks are accepted. While more and more merchants are starting to accept various forms of cryptocurrency, using a crypto debit card can give you better access to your cryptocurrency wallet.

However, note that when you pay with a crypto debit card, you’re selling some of your cryptocurrency and exchanging it for dollars. Because you may be selling at a higher or lower price than what you bought it for, this constitutes a taxable event. You’ll need to do the work of keeping track for tax purposes. Additionally, you could incur a fee for the conversion.

Recommended: Can You Buy Crypto With a Credit Card

Pros and Cons of Using a Crypto Debit Card

As you can see, there are pros and cons to this type of card. Here’s what to keep in mind when choosing crypto debit cards:

Pros of Using a Crypto Debit Card Cons of Using a Crypto Debit Card
Better access to your crypto wallet Fewer crypto debit card than other types of rewards debit cards
Opportunity to earn rewards and/or perks Cryptocurrencies can be volatile and/or lose value
More convenient to use than other crypto redemptions A debit card may be less secure than a cryptocurrency wallet
Taxes or fees may apply

Recommended: Tips for Using a Credit Card Responsibly

Differences Between a Crypto Credit Card and a Crypto Debit Card

There are a few important differences between a credit card and debit card, and it’s important to know these differences when considering a crypto debit card vs. crypto credit card. Specifically, here are the essential differences to keep in mind:

Crypto Credit Card Crypto Debit Card
Rewards Most crypto credit cards offer rewards Fewer debit cards offer rewards
Using cryptocurrency Purchases don’t spend from your crypto wallet Cryptocurrency is withdrawn from your wallet with each purchase
Credit check on application Yes No

Recommended: Does Applying For a Credit Card Hurt Your Credit Score

The Takeaway

Crypto credit cards and crypto debit cards both rely on cryptocurrency, but in different ways. A crypto debit card withdraws crypto directly from your wallet to make purchases. Purchases on a crypto credit card use a credit line issued to you in your local currency, but you may earn crypto rewards with every purchase.

If you’re looking for a non-crypto rewards credit card, you might consider a cash-back rewards credit card like the SoFi Credit Card. You can earn unlimited cash-back rewards, which you can use to invest in fractional shares, redeem for statement credit, or other financial goals you might have, like paying down eligible SoFi debt. Learn more and start earning credit card rewards today.

Apply for a SoFi Credit Card!

FAQ

Is it safe to use a crypto credit card or crypto debit card?

There are many different crypto credit cards and crypto debit cards. Look for one that is issued and branded by a reputable company. Even if you have a reputable card, know that there is still some risk, as anyone who gets your card number might also be able to access the cryptocurrency funds in your e-wallet.

Will buying crypto with a credit card amount to a cash advance?

If you want to buy crypto with a credit card, be aware that many credit card issuers will not allow you to buy directly with your card. And for those credit card issuers that do allow you to buy crypto with a credit card, the purchase may be treated as a cash advance. Cash advance transactions come with additional fees and often carry higher interest rates, so make sure you’re aware of those specifics before buying crypto with a credit card.

How are crypto credit and debit cards taxed?

Generally speaking, any time you use cryptocurrency to pay for something, you’re triggering a taxable event. This would likely include purchases made with a crypto debit card. The IRS has currently not given specific guidance on the taxability of crypto earned as a reward for purchases. Consult with your tax advisor if you’re not sure about how your crypto credit and debit cards will be taxed.


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Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

The SoFi Credit Card is issued by SoFi Bank, N.A. pursuant to license by Mastercard® International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

1See Rewards Details at SoFi.com/card/rewards.

SoFi cardholders earn 2% unlimited cash back rewards when redeemed to save, invest, a statement credit, or pay down eligible SoFi debt.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Members earn 2 rewards points for every dollar spent on purchases. No rewards points will be earned with respect to reversed transactions, returned purchases, or other similar transactions. When you elect to redeem rewards points into your SoFi Checking or Savings account, SoFi Money® account, SoFi Active Invest account, SoFi Credit Card account, or SoFi Personal, Private Student, or Student Loan Refinance, your rewards points will redeem at a rate of 1 cent per every point. For more details, please visit the Rewards page. Brokerage and Active investing products offered through SoFi Securities LLC, Member FINRA/SIPC. SoFi Securities LLC is an affiliate of SoFi Bank, N.A.

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Guide to Paying Credit Card With a Debit Card

Guide to Paying Credit Cards With a Debit Card

Credit card companies don’t alway make it easy, but there are ways to pay your credit card bill with your debit card. To use your debit card to pay a credit card bill, you must do so via bank transfer payment. In other words, you have to use either a credit card provider’s payment portal or a third-party payment portal that includes not only your debit card information, but also your banking information.

Keep in mind, however, that credit card companies usually prefer to receive payment funds from the customer’s bank account over a physical debit card. Many credit card providers simply don’t accept monthly bill payments with physical debit cards, but they will allow debit card payments if you play by their rules. That may change the way you may use a debit card to pay a credit card bill, but it doesn’t mean you can’t do it.

Can You Pay a Credit Card With a Debit Card?

You might be able to pay a credit card with a debit card. Whether you can do so really depends on the credit card provider’s policy on debit card payments — some credit card policies allow for them and others don’t.

Consequently, you may have to go out of your way to get the job done. When you go to pay your credit card bill, there likely won’t be an option to enter a card number as a method of payment, whether that card is a credit card or a debit card. In most cases, however, you can pay your credit card bill with the bank account that the debit card is attached to by making an electronic transfer.

Recommended: Tips for Using a Credit Card Responsibly

How to Make a Credit Card Bill Payment (Indirectly) With a Debit Card

Even if you can’t use a debit card to directly pay a credit card bill, you can indirectly use a debit card — or rather the funds attached to that debit card — to pay your outstanding credit card debt. Here’s how:

1.    Review your checking account, and get the bank routing number and checking account number. Do so privately and securely, so as not to attract financial fraudsters.

2.    Go to your credit card account to set up automatic payment. A handy feature of how credit cards work, this will allow money to be withdrawn from your bank account ahead of the monthly payment due date. On that date, the credit card company will withdraw the specified cash amount from your bank account.

3.    Make sure you have enough cash in your bank account to cover the withdrawal. If you don’t, your credit card company will reject the payment. It’s up to you to reach out and make good on your monthly credit card payment that’s due. Any delay in doing so could result in a missed or late payment, which could have financial consequences.

Recommended: When Are Credit Card Payments Due

Paying a Credit Card Bill With a Debit Card Online

If you’re using a debit card to pay a credit card bill online, you’ll need to make that payment through the credit card’s payment portal. The good news is that credit card companies may accommodate online debit card payments.

Once you’ve signed into your credit card account, you’ll be given several options to pay your bill. The most common methods include ACH bank payment, a third-party payment platform, over the phone, or with your debit card.

Simply click on the debit card payment option and fill in your card details (this should only be a one-time occurrence as your debit card information should be securely held by your credit card provider in its payment portal.)

Once your debit card information is accurately entered, review the payment and hit “send.” Your payment should be confirmed immediately by the card carrier, and the money will leave your debit card account within 24 hours or so.

Paying a Credit Card Bill With a Debit Card Offline

Credit card companies likely allow you to use your debit card to make a credit card payment by phone, in person, and sometimes through the sponsoring bank’s ATM.

Make sure you have your debit card on you before paying at any bank or over the phone. If even one digit is wrong, the payment won’t go through, and you’ll have to revert to another form of payment to cover your credit card debt.

Are There Any Downsides to Paying Your Credit Card Bill With a Debit Card?

The fact is, while credit card companies will accept debit card bill payments, it’s not their preferred form of payment. It’s easier for credit card carriers to process bank ACH payments or third-party payments through platforms like PayPal, which handle the process for the card company. As such, you’ll have to jump through hoops or go an indirect route, similarly to if you were to try to pay credit card statement with another credit card.

Further, debit card payments may be prone to various outcomes that credit card companies don’t like. This includes scenarios such as the cardholder not having enough money in their account to cover the credit card payment or the fact that debit cards are common targets of financial fraudsters. In fact, a key difference between a credit card and debit card is their levels of payment protection.

The Takeaway

Just because you can use a debit card, even in limited fashion, to pay your credit card bill doesn’t mean you should. To keep payments flowing smoothly and to protect your debit card (and your bank account), it’s likely a better move to pay your credit card bills via bank ACH transactions, or through secure third-party payment processors. That way, your payment still originates from your bank checking account — only without the potential payment and security headaches that may come with using a debit card to pay a credit card bill.

Whether you're looking to build credit, apply for a new credit card, or save money with the cards you have, it's important to understand the options that are best for you. Learn more about credit cards by exploring this credit card guide.

FAQ

Can I pay a credit card online with a debit card?

Technically, yes, you can pay your credit card bill with your debit card. However, it may take some extra steps to do so.

Can I pay my credit card at an ATM with a debit card?

Yes, you can use a debit card at an ATM to pay a credit card bill — but only an ATM from the bank that offers the credit card.

Are there extra charges for paying a credit card with a debit card?

You generally won’t face any extra charges for paying a credit card with a debit card. You may simply have to jump through some extra hoops to do so.

Can I pay my credit card bill with someone else’s debit card?

While this is technically doable, it’s not advisable. Using another party’s debit card to pay a credit card bill can get complicated, especially if you’re not certain the other person’s bank account has sufficient funds to cover your balance.


Photo credit: iStock/insta_photos

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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